Condos vs. Co-operatives - What's the Difference?

History and Ownership Structure

Co-ops have existed in Washington, DC, since 1920. There are approximately 120 co-ops in the DC area. A co-operative is a corporation formed for the purpose of providing housing for its members or owners. Some co-operatives own the building but lease the land, and many own the land as well. With a co-op, the "owner" (member) purchases shares in the corporation and in return is given the right to occupy a unit. With a condo, on the other hand, the owner purchases the unit itself, along with an undivided interest in the common elements (hallways, courtyards, lobbies, etc).


One of the key differences between condos and co-ops is financing. With a condo, you can use virtually any bank, credit union, or other lender in the open market to finance the unit. A co-operative, however, requires you to use an approved lender. These lenders are the ONLY ones acceptable for use. Financing is the key reason that condos became, and remain, more popular. Until 1979, bank financing was not even available to co-op owners. One had to either pay cash or the seller had to take back a note for part of the cash requirement. This made co-ops very difficult to sell. In 1979, loans for up to 95% of the value of the co-op unit were allowed (less the allocated portion of the corporate mortgage). Now co-ops are seen by many as a way to get more for your money! 

Board Approval 

With a co-op, you will be required to present information to the Board before your purchase is approved, even if the seller accepts your offer. The board will likely ask for detailed financial statements, verification of income and employment, a credit report, and/or tax returns. Most co-ops also schedule an interview with the buyer. Similarly, when you sell, your purchaser will need to be approved using the same process. Though buyers often assume this is a "nightmare" process, it is usually not the case. Current owners simply want to ensure that their new neighbor is financially sound in order to protect the best interests of the building as a whole and the value of their investments.

Other Advantages and Disadvantages to Co-ops

  • Purchase Price: As a general rule, co-ops are less expensive than comparable quality and size condos. As noted earlier, this is sometimes due to the historical financing differences. Co-ops tend to be in older buildings as well. 

  • Closing Costs: A co-op transaction is a purchase of stock, and not real property, so closing costs are less expensive. Because you are not buying real property, there is no transfer or recordation tax (note that as of 10/1/2009, DC will begin charging transfer and recordation taxes just as it does with condos), no real estate tax proration, and no title search or title insurance. This offers big savings at closing, as title insurance is one of the largest expenses for a buyer.

  • Investment Properties/Renting Units: Co-ops usually restrict the percentage of rental units to maintain the owner/investor ratio. Often there are requirements that an owner live there for a period of time, and then they may rent for a period of time, but following that period, they must either move back in or sell. 

  • Repairs and Maintenance: Co-ops have the ability, as corporations, to borrow money for large capital improvements, and place the building or land as collateral. This is known as the "underlying mortgage" and the payment to service this debt is built into a co-op's fees. A condo needing a large sum of money quickly may be forced to collect a special assessment. 

  • Monthly Fees: Monthly co-op fees are often higher than condo fees because they may include an underlying mortgage payment or other borrowings by the corporation. Co-op fees also include property taxes (since taxes are assessed on the entire building as one entity, rather than each individual unit). This is a significant difference between co-op and condo fees, so to compare apples to apples, you need to look at the property taxes on an individual condo unit! The sales price of a co-op in the multiple-listing service must be shown as the gross price, that is, including the unit owner's pro-rata share of any underlying mortgage. So if a co-op is listed at $400,000, it's possible that a portion of that price is already "financed" via the underlying mortgage, and thus a buyer's loan amount could be less.

  • Leased land: Co-ops that are built on leased land, such as River Place in Rosslyn, have a limited life. At the end of the lease, the land and all its improvements (including your unit!) reverts to the landowner unless the co-op has negotiated for another option.

Source: Co-operatively Speaking, Edmund J. Flynn Company; Washington Post.